Does Prolonged Monetary Policy Easing Increase Financial Vulnerability?

IMF Working Papers, March 24, 2017

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Does Prolonged Monetary Policy Easing Increase Financial Vulnerability?

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Bibliographic details

• Authors: Stephen Cecchetti, Tommaso Mancini-Griffoli, Machiko Narita
• Published: March 24, 2017
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781475588644.001

Study overview

• Authors: Stephen Cecchetti, Tommaso Mancini-Griffoli, Machiko Narita
• Publication: IMF Working Paper No. 2017/065
• Date: March 24, 2017
• Pages: 31
• DOI: https://doi.org/10.5089/9781475588644.001
• Sample and scope:
  • Firm-level data for approximately 1,000 bank and nonbank financial institutions
  • Coverage: 22 countries
  • Period: past 15 years

Key findings on risk-taking and vulnerability

• Leverage and vulnerability:
  • The leverage ratio increases for banks and nonbanks as domestic monetary policy easing persists.
  • Other measures of firm-level vulnerability also increase as domestic monetary policy easing persists.
• Cross-border and spillover effects:
  • Cross-border effects are notable.
  • Effects of roughly similar magnitude are observed on foreign financial sector firms when the U.S. eases policy.
• Non-linearity and timing:
  • Results appear non-linear, with risk-taking behavior rising most quickly at the onset of monetary policy easing.
• Robustness:
  • Results appear robust to a variety of specifications.

Subject areas and keywords (as listed)

• Subject: Accommodative monetary policy; Asset and liability management; Asset management; Banking; Bond yields; Financial institutions; Financial sector policy and analysis; Financial sector risk; Financial services; Investment banking; Monetary policy
• Keywords include: Accommodative monetary policy; Africa; Asset management; asset-to-equity leverage ratio; Banks; Bond yields; financial institution leverage; Financial sector risk; financial stability; financial vulnerability; Global; interest rate; Investment banking; leverage benchmark; monetary policy; monetary policy easing; monetary policy impulse; monetary policy transmission mechanisms; nonbank financial institutions; nonbank leverage; prolonged monetary policy easing; quarter; risk-taking behavior; spillovers; WP

Content in this bundle

• Does Prolonged Monetary Policy Easing Increase Financial Vulnerability?, WP/17/65, March 2017
  • Does Prolonged Monetary Policy Easing Increase Financial Vulnerability?, WP/17/65, March 2017 (Markdown version)
  • Does Prolonged Monetary Policy Easing Increase Financial Vulnerability?, WP/17/65, March 2017 (PDF)